The district court denied a motion to dismiss FCA claims against one of multiple defendants, generally finding no support for his argument that the government failed to allege the facts of a kickback scheme with particularity. The court found the government clearly set out the who, what, when, where, and how of the scheme; showed that the scheme violated the contracts’ anti-kickback clauses; and provided reliable indicia that false claims had been submitted. The court rejected the defendant’s argument that he had not directly submitted any false claims, because the invoices originated with his company, explaining that the FCA also covers anyone who causes the submission of false claims. While the defendant argued they had made no misrepresentations about the services rendered, the court explained that withholding information—such as the fact that costs were inflated due to the kickback scheme—also implicated liability.
The defendant argued the kickback scheme was not material because the government continued to pay the contractor’s invoices after the qui tam suit was filed, but the court noted the government launched an investigation that uncovered ongoing wrongdoing and did not want to alert the defendants to the investigation by withholding payment. Interestingly, the defendant asserted the invoices were not false claims because they accurately reflected the cost to the government, and that the actual cost of performance was immaterial, but the court found that it incredulous to suppose the government would have paid the invoices had it known the contract price was improperly inflated by the kickback scheme and the use of shell companies to hide the true cost of work to the contractor.
Anthony Acri moved the court to dismiss claims filed against him in relator Susann Campbell’s qui tam case alleging the defendants engaged in a scheme to fraudulently obtain and maintain $3 billion worth of U.S. Army construction contracts.
The government intervened in the case and after a lengthy investigation, Acri was among the defendants indicted for major fraud against the United States and conspiracy to defraud. Acri pleaded guilty. Separately, the government negotiated a settlement with KICD, and RECA was dismissed by consent of the parties.
Generally, the government alleged that while employed as a project manager by an engineering consulting firm contracting with the U.S. Army Corps of Engineers, defendant James Tuskan had access to confidential USACE information and the ability to influence the process of awarding contracts to perform construction work on Fort Bliss.
The government alleged that KICD executives Acri, Hayes, and Hall agreed with Tuskan that—in exchange for bribes and kickbacks—he would provide them with confidential information, ensure that KICD is awarded government contracts, and help them to inflate the price of those contracts. This scheme was then realized in connection with at least two projects under Tuskan’s management at Fort Bliss. To further the scheme, the defendants formed RECA Construction, which KICD hired as a subcontractor. RECA then hired additional subcontractors to perform the actual labor and funneled the inflated profits to the individual named defendants in the form of consulting fees outside the bounds of the contract.
The civil FCA complaint alleged five causes of action: that the defendants knowingly submitted false claims for payment; knowingly made false records; conspired to violate the FCA; hold money that belongs to the United States and must be returned; and hold money that was wrongfully paid by the United States. The court considered the dismissal request for each in turn.
In the first cause of action, the government argued that because the defendants obtained and maintained public contracts at inflated prices through a kickback scheme, all claims for payment under those fraudulently obtained contracts were made in violation of the FCA. Alternatively, the government asserted theories of implied false certification and fraudulent inducement.
First, Acri challenged whether fraudulent conduct is actionable under the FCA. He argued that the implied false certification theory fails because the complaint did not allege the defendants submitted claims for payment that made any representations about the goods or services provided under the contracts. However, the court that withholding information or presenting misleading half-truths also may implicate liability. For example, in U.S. v. Triple Canopy, the case turned on whether the defendant materially misled the government about the marksmanship skills of its private security guards—which would have impacted the government’s decision to pay invoices—not whether the defendant had provided the guards or billed for hours not worked.
In essence, Acri argued that KICD’s invoices did not make any representations about the services performed. However, the court noted that by making the claim for payment, KICD represented that it had complied with contact clauses, including the Anti-Kickback clause and prohibitions on offering gratuities to federal employees to obtain a contract. The scheme alleged, whereby Tuskan received bribes and kickbacks in exchange for providing confidential information to the defendants and ensuring that they were awarded government contracts at inflated prices, would violate these clauses. Further, the defendants certified they had completed certain work, but did not disclose they did so at a highly inflated price, earning profits greater than those allowed by law. Therefore, the court found the government sufficiently alleged a fraudulent course of conduct under an implied false certification theory.
Acri also argued that the alleged kickback scheme does not constitute fraudulent inducement because bribery alone does not state a claim under the FCA, and because the government did not bring the additional allegations necessary to make the alleged bribery actionable. The court disagreed, finding the government had adequately pled the contracts were obtained by fraud. KICD’s proposals falsely inflated projected costs and diminished its projected profits to hide the bribery scheme. The defendants also used Tuskan’s inside information to prepare a bid that could be approved for the maximum permissible value, while also planning to do as little work as possible themselves. The court found the government adequately demonstrated that the contracts would not have been awarded but for the fraudulent activity.
Next, Acri argued the government had not sufficiently alleged materiality, because it continued to make payments under its contracts after the initial qui tam suit was filed. In response, the government asserted that it began a covert criminal and civil investigation after the relator filed her complaint, and that ceasing payment would have tipped off the defendants, who were ultimately indicted for crimes committed during the course of the bribery and kickback scheme, and pleaded guilty. Further, the government noted that the amended complaint includes allegations of behavior that occurred after the initial filing, which would not have been discovered had the defendants been alerted to the investigation. Because the government had a good explanation for continuing to pay the defendants’ invoices, the court found that the payments did not demonstrate that the admitted fraud was not material.
Further, the court noted the government did not have actual knowledge of the fraud merely because the relator filed an action. Rather, the government conducted an investigation to determine the veracity of the allegations.
Acri also argued that the defendants only misrepresented KICD’s costs in their bids but did not misrepresent the price that the government would pay under the contracts. According to Acri, the material issue is the price to the government, not the cost to defendants. However, the court found this was a false distinction. Taking the allegations as true, it was precisely by inflating their projected costs that the defendants were able to obtain approval of their bid at a figure high enough to allow for their alleged graft. The court found it incredulous to suppose the government would have entered into the contract had it known of the kickback scheme and inflated pricing.
Next, Acri argued the government had not shown the requisite scienter, but the court found this argument unsupported, as the complaint contained multiple allegations that plausibly showed the defendants knowingly and willfully entered into the scheme, including emails between the parties and signed business documents.
Next, Acri argued the government failed to allege the existence of claims for payment with particularity. The government conceded it had not provided the details of the actual false claims submitted for payment, but argued it had described the details of the scheme and provided reliable indicia that such claims were submitted. The court agreed, finding the government described communications between the parties, the facts of the scheme, and the places and dates on which meetings occurred. In total, the court found the government set out in exacting detail how the defendants came to know each other, when they hatched their scheme, and how they put it into action.
Considering the allegations, the court found the government had alleged reliable indicia that false claims were presented, finding it implausible that Acri, Hayes, and Hall would develop the kickback scheme, pay Tuskan hundreds of thousands of dollars in bribes, siphon millions of dollars from KICD for their own enrichment, complete the construction projects, and then fail to submit claims for payment. Further, the government had provided the precise dates and amounts of payments to KICD for the contracts, which was enough for the court to infer that invoices had been submitted.
Next, Acri argued that the government’s claims should be dismissed because they only assert that KICD—and not he personally—submitted false claims for payment. However, the court again disagreed, first noting that the plain language of the FCA does not attach liability only to those to present false claims, but covers those who cause a false claim to be presented. The complaint against Acri clearly alleged that he knowingly participated in the underlying scheme that caused the claims to be false. The court also rejected Acri’s complaint that the government did not segregate the alleged wrongdoing by defendant, finding that the government clearly spelled out how, when, and where Acri himself participated in the scheme.
The court found the defendant’s motion to dismiss the government’s false records claim contained no arguments against the government’s position, and so declined to consider it further.
Next, Acri argued the government had not sufficiently pleaded the when, where, and how of the alleged conspiracy with particularity, but again the court agreed. As above, the court found the government set out in detail the who, what, when, where, and how of the scheme, and named the individual defendants. Even without this detail, the court found the existence of a conspiracy was readily inferred from subsequent email communication among the four individual defendants, in which Tuskan describes what he has done to secure USACE contracts for KICD and asks to be compensated.
Finally, Acri argued that the government’s two common law claims for money had and received and payment by mistake must be dismissed because they are equitable claims that are precluded by the existence of valid contracts.
In response, the government did not dispute the existence of the contracts but alleged that it had been fraudulently induced to enter into them, via the kickback scheme. According to the government, if it proves that it has been defrauded in this way, it may cancel the contracts and obtain quasi-contractual relief from the defendants.
In response, Acri argued that even if the government has the option to cancel the contracts, it affirmed them by allowing performance and making payments, for years after becoming aware of the allegations. However, the court found no authority that would require the federal government to promptly affirm or rescind contracts into which it was fraudulently induced.
Taking the government’s allegations as true, the court found it had stated not only a viable FCA claim but also the right to cancel its contracts with KICD as a sanction for the defendants’ kickback scheme, giving rise to rights in quasi-contract.
